European stocks have risen today by about 1.5% with Nasdaq likewise seeing a similar rise after months of red.
Gas is down about 20%, though oil keeps sticking to $120. Bitcoin’s $20,000 and eth’s $1,000 seems to have held for now. Is it over, at least briefly?
Fear, Uncertainty and Doubt (FUD) in the crypto community appears to have neared all time high with the doom sentiment probably at about 87 out of 100.
Three Arrows Capital (3AC) may go down with that somehow being worse than the tons of other liquidations just because they’re a hedge fund.
Alas, it probably isn’t any worse. Billions have been liquidated, some of those were 3AC’s, who cares except for some that have it out for 3AC.
To us, and we presume to the market, a liquidation is a liquidation. And there have been many, many liquidations.
Celsius has been trying to keep up with all these liquidations as well. They appear to have most of the funds, so the FUD here presumably is: keep your own custody and use actual defi if you don’t want to be at the whims of others.
The actual FUD however, whether stETH ‘depeging’ or Tether going under, hasn’t quite played out. Presumably banksters can’t win all battles.
But they might be winning the war on the economy. The British one might have contracted this quarter. For the US one we expect the statisticians to torture the data so much that there’s no chance they say there was a contraction.
That would mean every frontpage declares recession, and they’ve told us recession is next year, not right now. But, money is being burned, fairly literally.
US banks are holding more than $2 trillion with the FED, just parking it there. Fed effectively ordered them to by increasing the rate it gives to them in reverse repos.
That’s two trillion taken out of the economy, just sitting there doing nothing. Perfect as far as the Fed is concerned as they don’t want you to spend or borrow, but to hoard cash.
That’s of course against everything they said as hoarding cash means downwards spiral, gold bad because no inflation. Clearly what they meant is: bad when they say so.
Apparently, in this controlled economy, people getting paid more for work they do is bad too. The labour market being tight, as in everyone having a job, is also bad. Even growth is actually bad.
What is good is a recession, a crash. No great resignation, no roaring 20s, no peace. Managed chaos instead. Everything bad, unless they say otherwise, and recession is not bad – at least for now.
The effectiveness of the propaganda apparatus however is so astonishing in creating the appearance of it is thus or it is known. In Britain for example, while their central bank crashes the economy, they talk of how many glasses of champaign Boris Johnson had.
No panel of a diverse group of economists, diverse in thought. No discussion of why are we not allowed to have good growth. No questioning of the orthodoxy. That’s of course a sin.
And yet some do question it because we do have an abuse of the separation of powers, an encroachment by the central bank on the fields of others.
Powell is clearly engaging in oil diplomacy because Biden can not. Biden in fact has seemingly been unable to engage in any sort of diplomacy at all.
When Russian tanks headed to Tbilisi, the then George Bush administration announced a humanitarian mission to Georgia to be carried out by the US army. Those tanks stopped of course, and reversed.
When talk began in May 2021 of Russian troops gathering on Ukraine’s borders, Biden sent the navy to the Black Sea. Putin of course backed down.
When those same troops gathered again, Biden turned into a news anchor, telling us this is going to happen, that is going to happen. And? What you gone do about it?
Well, not quite nothing but not quiet actually something either. And so we can rewind. He did talk about gas prices starting in at least December, but again what exactly did he do about it?
It appears the only thing America can do is to crash its economy so as to crash the price of oil and gas. That will show them.
The developing world might now be in some trouble. They’ve attracted a lot of investment due to negative interest rates in Europe and zero interest on savings in USA.
Money had no choice. The emerging economies, yadayada. 15 years of it. But now America is providing yield, and even more than China. Europe will follow next month.
A lot of that money will thus come back, parked into bonds and other assets. A lot of the developing world may sink in the process as liquidity is sucked out. So they said go east, now they saying go west.
Unstagnating the Economy
The intentional policy decisions of the past decade and a half of subsidizing countries like China have clearly backfired with the shaking up of the establishment in both Brexit and Trump.
The establishment therefore now has to deliver good growth, by any means, if they are to retain power with the world currently witnessing the still might of the United States in action.
What may seem or even be a recession might thus be mild as a potential outcome might be an actual boom.
That’s because banks have had no incentive to lend, and the government has had no money to spend due to wasting a lot of it on not even building an empire in the last two decades as the slight of some ‘allies’ may be showing.
With interest rates rising, banks make more money, and therefore may be less strict in some lending requirements. They’ll still tick the boxes of course but with Moody’s stamp.
The monetary deflation of the past two decades is thus over, or might be coming to an end. Now some call this money easing, and it was, but if we understand it correctly in 2008 trillions were pretty literally burned.
The central bank, which has done this money printing, has been replenishing all those trillions for the past circa two decades. They don’t lend to the public or companies, but banks and governments.
As far as the public is concerned therefore, there has been no money printing, and as far as the economy is concerned – outside of VC lubricated Silicon Valley – money has been extremely tight for the vast majority.
For the rich of course they have their own rules, and they’ve gotten the first block reward. Now it may be that the public is getting some of that block too.
What may be coming therefore is not a monetary tightening as far as the public is concerned, but a loosening.
The Fed will tighten but commercial banks will finally make money from lending again, and so they’ll loosen.
It will thus be more expensive for the rich to borrow, but for much of the public they can finally borrow, they can take part in block production.
Consumption might thus rise as well as spending, and the velocity of money may finally move away from all time low, with a general boom felt down the street potentially following.
Or has to. The stagnation of the past two decades outside of tech clearly has political consequences, and so they have to respond to what people want, which is growth.
Meaning a recession, outside of Silicon Valley, may well be temporary if it is felt at all. Yet it does depend of course on whether they can smoothly manage the transition to banks lending again more widely while making that borrowing more expensive for the rich.
There’s talks now of interest rates going to as much as 4%. We have an a/b test now though in the European Central Bank going more slowly, and so there will be clear data.
Which means where the ends are concerned, and presuming they do provide some proper growth even if it is after some adjustment, we might not even disagree but doubling interest rates in one go and sending them to 2% next month, and 3% in September, we would have gone a bit slower. But ECB is, and so the Powell approach will hopefully result in only a shock to the rich that have to deleverage in a temporary re-adjustment towards proper growth.
Bitcoin in Boom
Where bitcoin and cryptos are concerned, it depends how you view the asset. For gold, if we are entering boom – and if we’re not then interest rates will come down so no change – then we’d stay quite a bit away from gold as that’s not quite an asset you hold during boom because it is pretty useless.
Cryptos are not quite useless. They’re a financial service. Billions are transferred in crypto everyday, and we assume some of that is actual economic activity.
During a boom, such activity should rise since there’s more economic activity in general, more trade, including more global trade. Thus more demand and uses for bitcoin in commercial transfers.
As its awareness and adoption grows then its use should grow and so its price. With no fundamental change because the money printing was trying to emulate growth. Now presumably we’ll get actual growth, and so the end result may well be very much the same.
Defi won’t be without competition whatever however as some banks start giving interest, but there’s a lot that you can do in defi that you can’t do in a savings account, including building legos or strategies.
The only way there would be a fundamental change is if the supply of dollars falls, and that’s dollars in circulation rather than Fed’s balance sheet. That can’t happen while there’s growth and if there isn’t growth then Fed has to target 2% inflation.
So it’s more a reshuffling, a changing of the guard, rather than an actual revolution. Banks will be printing instead of Fed if we finally start getting growth. What does bitcoin care?
The doom thus is maybe overdone, but previous cycles suggest there’s quite a bit more to go in time, about six months from here and a year to start moving again.
That coincides with Powell’s timetable as well. The Bank of England is also saying the worst will be in autumn. So hopefully it’s just ‘theatre’ doom, TV stuff, not quite ‘real.’
As what matters more is what comes after, and politically it seems quite clear that the answer can not be much else but growth, at least in USA and Europe.
The emerging world might get a pause instead, but bitcoin may well just keep bitcoining as it’s not a growth asset or a risk on asset or a safe haven, but all of those things.